Work & Leisure (F583) Keyterms

The positive difference between total revenue and total cost is at its greatest.

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Normal Profit

The minimum level of rofit necessary for the entrepreneur to stay in the industry.

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Abnormal/ Supernormal Profit

Profit over and above normal profit.

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Breakeven

When Total Revenue is equal Total Cost

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Market share

The percentage of an industry or market's total sales that is earned by a particular firm over a specified time period (a year)

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Sale "Revenue" maxisation

Maximising the income earned from selling the product or service.

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Sales maximisation

Maximises the volume of sales.

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Profit satisficing

The firm aims for a satisfactory level of prodit, rather than the maximum.

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Social resonsibility

A firm feels a moral/ethical obligation to act in a way that benefits society, rather than just focus on profit maximisation.

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Fixed Costs

Costs that do not change in the short-run. They are independant of the quantitiy of output produced so do not vary with the level of production. Rent is a good examle.

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Variable Costs

Costs that are directly related to the level of output produced. Raw materials are a good example.

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Total Costs

Fixed Costs + Variable Costs

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Average Cost

Total cost divided by output; also called unit cost of production or unit cost.

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Average Revenue

Total Revenue divided by the quantity of output sold.

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Loss

Occurs when Total Costs are greater than total revenue and not even normal profit is being made. Firms can only cope with a loss in the short run before they have to exit the industry.

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The "short-run"

The time period when atleast one factor of production is fixed in supply.

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The "long-run"

The period of time when it is possible to alter the amount of ALL factors of production.

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"The Law of Diminishing Returns"

Is the decrease in the marginal (incremental) output of a production process as the amount of a single factor of production is incrementally increased, while the amounts of all other factors of production stay constant.

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SRAC

Average costs in the short-run where atleast one factor of production is fixed, acting as a constraint on output.

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LRAC

Average costs in the long-run where the amounts of ALL factors of production can be altered.

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Economies of scale

Benefits in the form of lower long-run average costs that result from an increase in the scale of production. These benefits may arise from the growth of the firm or the industry.

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Diseconomies of scale

An increase in LRAC caused by an increase in the scale of production.

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Internal economies of scale

Economies of scale that occur within the firm as a result of its growth.

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External economies of scale

Economies of scale that result from the growth of an industry nd beenfits firms within the industry.

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Interanl Diseconomies of scale

Where LRAC begin to rise as a firms output grows

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External Diseconomies of scale

Occurs when an industry grows too big and results in higher average costs for the firms within the industry.

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Economic efficiency

is about making the best or optimal use of our scarce resources and making rational decisions so that economic and social welfare is maximized over time.

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Static efficiency

focuses on how much output can be produced now from a stock of resources at a given point in time.

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Allocative efficiency

Achieved when the value consumers place on a good (reflected in the price they are willing to pay) equals the cost of the resources used up in production of that good. Condition required is that price = marginal cost (P=MC).

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Productive efficiency

Productive efficiency refers to a firm's costs of production and can be applied both to the short and long run. It is achieved when output is produced at minimum ATC.

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Dynamic efficiency

focuses on how efficient a firm within an industry can be in the future. I.e. its potential to increase efficiency.

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Contestability of a market

the extent to which there are barriers to entry and exit of firms in the market and the level to which costs facing new firms and incumbent firms are equal.

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Barriers to entry into a market

Obstacle to firms entering a market.

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Natural Monopoly

A market where long run average costs are lowest when output is produced by one firm. One firm can provide the product in th emost efficient way gaining large E of S (e.g. 'Network Rail' for rail tracks).

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Legal Monopoly

A market where a firm has a share of 25 per cent or more of the sales made in th etotal market (e.g. 'Cine World' for cinema movies).

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Dominant Monopoly

A market where a firm has a 40 per cent share or more.

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Pure Monopoly

A single seller of a product in the market... in this instance the firm = the whole indutry.

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Oligopoly

A market structure dominated by a few large firms.

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Concentration ratio

The proportion of the total market shared between the largest firms.

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Interdependance

Firms must take into account the likely reactions of other firms in the market when making pricing and investment decisions.

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Game theory

a theory of how decision makers are influenced by the actions and reactions of others.

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Price wars

a state of intense competitive rivalry accompanied by a multi-lateral series of price reductions. One competitor will lower its price, then others will lower their prices to match.

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Price rigidity

a situation where rivals will follow a decrease in the price but not an increase. This encourages prices to remain at a rigid level.

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Non-price competition

describes ways in which firms try to seek to attract customers from their rivals by ways other than charging a lower price.

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Backward bending labour supply curve

A labour supply curve that shows the substitution effect dominating at low wages and the income effect dominating at high wages.

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Substitution effect

The effect on the supply of labour caused by a change in the opportunity cost of leisure. A higher wage rate increases the return from labour therefore we substitute leisure for more work hours. (Always positive).

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Income effect

The effect on the supply of labour caused by the change in ability to buy leisure. As wages rise the worker buys more of most goods and services – including leisure so may work less to consume more leisure.

Of working age and available/eligible for work, either emloyed or unemployed. Also reffered to as the labour force or labour supply.

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Economically inactive population

Those who are neither in work nor available for work.

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Labour market

The interaction of labour demand and labour suply for an industry, region or nation.

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Unemloyement

Where someone is willing and able to work but cannot find a job.

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Under-emloyment

Where people are in employment, but are not utilised as fully as they could be.

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Market failure

Where the Free-Market mechanism failes to achieve allocative efficiency.

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Labour Market Failure

When the Labour market forces of supply and demand fail to allocate labour resources efficiently.

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Trade unions

labour organisations that seek to promote the interests of their members.

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Disequilibrium unemployment

Unemployment caused by the aggregate supply of labour exceeding the aggregate demand for labour.

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Equilibrium unemployment

Unemployment that exists when the labour market is in equilibrium.

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Non-Accelerating inflation rate of unemployment (NAIRU)

The level of unemployment that exists when the labour market is in equilibrium; also called equilibrium unemployment.

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Geographical immobility of labour

Barriers to the movement of workers between areas.

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Occupational immobility of labour

Barriers to workers changing occupations

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Derived Demand

Where the demand for one item depends on the demand for another.

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Marginal revenue product (MRP)

Is the change in a firm’s revenue resulting from employing one more worker.

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How to calculate MR???

MRP = MPP x P

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Marginal product of labour (MPL)

Is the change in the value of output that results from employing one more worker.

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Marginal Physical Product (MPP)

Is the change in a firms physical output resulting from employing one more worker.

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Monopsony

A monopsony exists when there is only ONE BUYER in the market.

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Absolute Poverty

Absolute Poverty is when a person’s income is so low that it threatens their survival and their basic human needs for food, shelter, warmth are not being met.

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Relative Poverty

Relative poverty means that individuals are poor in relation to others in society. The threshold usually used to define relative poverty in the UK is: ‘income 60% of the median or less’.

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Inequality

Inequality means a lack of equity, or fairness, between different groups. The extent of inequality in a society is shown by the gap between rich and poor. Inequality is measured by the Gini Coefficient/index.